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Judge orders Microsoft to be split in two

Posted: Thursday, June 08, 2000

By Larry MargasakAssociated Press

WASHINGTON -- A federal judge ordered the breakup of Microsoft Corp. on Wednesday, declaring the software giant that spurred an explosion in home computing should be split into two because it ''proved untrustworthy in the past.''

''Microsoft, as it is presently organized and led, is unwilling to accept the notion that it broke the law,'' U.S. District Judge Thomas Penfield Jackson wrote as he ordered the most dramatic antitrust breakup since AT&T in 1984.

An unrepentant Microsoft Chairman Bill Gates vowed to appeal, calling the division of his empire an ''unwarranted and unjustified intrusion.'' He said the company would seek to block Jackson's order from taking effect during the appeals process.

''This is the beginning of a new chapter in this case,'' added Gates, who would only be able to control one of the two companies created by the ruling.

''This is the beginning of a new chapter in this case,'' Gates said.

Jackson's ruling came two months after he concluded April 3 the software company violated antitrust laws by using illegal methods to protect its monopoly in computer operating systems, stifling competition. He also found the company tried illegally to expand its dominance into the market for Internet browsers.

The judge gave the company four months to devise a plan to divide itself into two parts.

One company would manage the Windows operating system that helped make Gates a billionaire; the other would manage all of Microsoft's software, such as its Office Suite and the Internet browser that spurred the antitrust lawsuit filed by the Justice Department and 19 states.

Attorney General Janet Reno said the ruling will have a profound impact ''not only by promoting competition in the software industry but by reaffirming the importance of antitrust laws in the software era.''

New York Attorney General Eliot Spitzer, whose state joined the suit, called the decision a ''pretty scathing assault on Microsoft.''

Jackson suggested in his ruling that Microsoft was continuing predatory business practices.

''There is credible evidence in the record to suggest that Microsoft, convinced of its innocence, continues to do business as it has in the past, and may yet do to other markets what it already has done in the PC operating system and browser markets,'' the judge wrote.

Jackson's ruling imposes several measures designed to protect Microsoft's competitors.

Among them, he ordered Microsoft to divulge to outside developers technical information about the way Microsoft operating systems interact with its software. Those developers will be able to pick apart the computer code without cost to improve their understanding of it and make their own products.

Microsoft also would no longer control what icons are on the Windows operating screen when a user buys a computer. This means that consumers buying a computer from a distributor such as Dell or Gateway could see a desktop that looks nothing like the Windows desktop they're accustomed to.

Shares of Microsoft finished regular trading on the Nasdaq Stock Market up 87.5 cents to $70.50.

In ordering the breakup, the judge approved the penalty recommended by the government and 17 of the 19 states. He suggested Microsoft brought the split upon itself when it failed to settle the case -- even after the court named a mediator.

''The final judgment proposed by plaintiffs is perhaps more radical than might have resulted had mediation been successful and terminated in a consent decree,'' he noted.

Until the breakup is implemented, the judge ordered Microsoft to preserve the company's current structure, and to continue to maintain all current Microsoft products.

Jackson's ruling also forbids the company from entering into ''exclusive dealing'' that would restrict the development of competitors' products.

Federal antitrust law allows for cases of broad public importance to go directly to the Supreme Court, but the justices do not have to accept the fast-track system. If Microsoft appeals directly to the Supreme Court, the justice can send the appeal to the U.S. Court of Appeals for the District of Columbia, where it would be handled like virtually all other appeals from U.S. District Court rulings.

The only previous time the appellate court was bypassed in an antitrust lawsuit was the last case of this magnitude: the AT&T breakup.